Semiconductor ETFs Helping Tech’s Turnaround

June 19th at 7:30am by Tom Lydon

Apple (NasdaqGS: AAPL), Google (NasdaqGS: GOOG) and a few other sexier, “new tech” companies are the names that usually captivate investors’ attention when it comes to technology stocks and ETFs. However, a familiar sub-sector has helped lead tech’s recent resurgence.

In the past three months, the PowerShares QQQ (NasdaqGM: QQQ) is up almost 8%. Over the same time, shares of Intel (NasdaqGS: INTC) have surged 19.5% and it almost feels like that is the quietest almost 20% gain the span of 90 days that has come along in quite a while. Quiet or not, Intel and chip stocks are helping drive a resurgence in semiconductor ETFs. [Semiconductor ETF Bouncing Back]

So sturdy have been semiconductor ETFs that opting for any of the three of the group’s largest funds has treated investors to significant out-performance over QQQ. Since March 19, the three dominant chip ETFs have returned an average of 11.6%. [ETF Spotlight: Semiconductors]

The leader of the pack over that time has been the iShares PHLX SOX Semiconductor Sector Index Fund (NasdaqGM: SOXX). Almost 12 years old, SOXX holds 31 stocks with the ETF’s top-10 holdings combing for almost 61.6% of the ETF’s weight.

Before getting too excited about chip stocks, it is worth noting there have been some tepid performances over the past three months, including a slight loss for SOXX top-10 holding Broadcom (NasdaqGS: BRCM). However, Intel and Applied Materials (NasdaqGS: AMAT) are the ETF’s two largest holdings, combing for 17% of the fund’s weight. Applied Materials has surged 22% over the past 90 days, teaming with Intel to drive SOXX higher.

Intel has also been a boon for the Market Vectors Semiconductor ETF (NYSEArca: SMH), which has popped 11.1% since March. SMH does serve as a reminder regarding the advantages and disadvantages of ETFs with large weights to a small number of stocks. For example, SMH holds 26 stocks, but Intel and Taiwan Semiconductor (NYSE: TSM) combine for almost 34% of the ETF’s weight. That is good when those stocks are rising, not so much when they are falling. [ETFs for a Semiconductor Recovery]

Investors looking to avoid that scenario should consider the SPDR S&P Semiconductor ETF (NYSEArca: XSD). XSD is an almost equal-weight play on the semiconductor group that previously enjoyed spells where it outperforms SMH and SOXX. The key difference between XSD and the others is that as an equal weight fund, XSD’s weight to small-cap chip names is far higher than those of the other ETFs. That leads to increased volatility, but the ETF is up 21% this year, so it is hard to argue with the result. [Equal Weight Chip ETF Leads The Pack]

SPDR S&P Semiconductor ETF

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of QQQ, Apple and Google.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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